Country Forecast Germany August 2017 Updater

Country Forecast Germany August 2017 Updater

  • August 2017 •
  • Report ID: 1698142 •
  • Format: PDF


  • The Economist Intelligence Unit expects the centre-right Christian Democratic Union (CDU) to win the largest vote share in the federal election on September 24th, significantly ahead of the centre-left Social Democratic Party (SPD). The CDU will subsequently take the lead in coalition negotiations, leading to a new government under the current chancellor, Angela Merkel, who will thus remain in office for a fourth consecutive term.
  • We expect a coalition to emerge of the CDU and its Bavarian sister party, the Christian Social Union (CSU), with either one or two of the smaller parties. Another CDU-SPD grand coalition is less likely, as the latter is unlikely to want to spend another term in the shadow of Ms Merkel.
  • We expect the far-right Alternative for Germany (AfD) to enter parliament in the September election, but its support has fallen recently and the other parties consider it uncoalitionable, reducing its potential influence.
  • Germany will be expected to play a leading role on the global stage in the coming years, supporting the values of liberal democracy in the face of a rise in populism, leading the Brexit negotiations between the UK and the EU, and shouldering much of the political leadership on the Greek bail-out. Greater Franco-German co-operation is likely under Emmanuel Macron, the new French president, although German support for his proposed euro zone reforms will depend on the type of coalition that emerges after the election in September.
  • We forecast real GDP growth of 1.9% this year, reflecting strongly expansionary conditions in manufacturing and services, and annual average growth of 1.5% in 2018-21. Domestic demand will continue to drive growth in the coming years, but private consumption will lose momentum slightly as rising inflation offsets the gains to real incomes from a tightening labour market.
  • Consumer price inflation averaged 0.4% in 2014-16, subdued by a sharp drop in global oil prices. Underlying inflationary pressures are rising only gradually; we expect average EU harmonised consumer price inflation of 1.6% in 2017-21.
  • The external surplus will remain huge. The current-account surplus narrowed only slightly in 2016 from its historical high a year earlier, with the already substantial merchandise trade surplus further boosted by low oil prices. We expect a further gradual decline, to about 6% of GDP by 2021, as energy prices rise modestly and increased domestic demand pushes up imports.






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